Ottawa must have paid too much for Trans Mountain

The federal government has paid $ 4.5 billion for a pipeline that could only cost $ 3.6 billion, and a delay of more than a year or an increase in (probable) construction costs will cost an additional $ 1 billion to taxpayers.

This is the result of a new study by the Parliamentary Budget Officer released Thursday on the value of the Trans Mountain pipeline purchased by Canada last year.

In total, it evaluates the oil transportation infrastructure in Western Canada and its expansion project is worth between $ 3.6 billion and $ 4.6 billion.

“The government has paid the higher price in the price fork. If it were a car, we could say that the government paid the advertised price, without negotiating or receiving a discount. He paid the price suggested by the manufacturer, “notes the Parliamentary Budget Officer, Yves Giroux, adding that it was a” risky “purchase.

The Trans Mountain Pipeline currently transports crude oil between refineries in Alberta, British Columbia and the United States. An expansion project proposed by former owner Kinder Morgan aims to extend and double the capacity of this infrastructure.

The project is highly contested by Aboriginal and environmental groups in Western Canada and has suffered many delays and repercussions.

The Federal Court, in particular, served a stinging defeat in Ottawa on August 30th, ordering the government to redo its study and consultation duties before approving the building permits for the expansion.

Thus, the federal government decided the next day to buy the pipeline to complete the project itself. The scheduled date is December 31, 2021.

Very expensive delays

However, a one-year delay and a 10% increase in construction costs would reduce the value of the pipeline by an additional $ 1.2 billion, calculating the PBO.

He also believes that these scenarios are very likely.

“If there are delays or cost overruns, it is certain that the government will have paid too much for the expansion of the pipeline […] In my opinion, it is unlikely that construction will be completed in time, and each time the schedule for a major infrastructure project is delayed, costs tend to increase, Giroux says.

“We must not forget that the construction of this pipeline passes on land that is sometimes inhospitable […] construction in winter is more difficult, and it is prohibited in some places at times because of impacts on wildlife”, continued the PBO.

The analysis of the watchdog of the federal finances, however, comes with a catch: it did not evaluate the value of different terminals attached to the pipeline, and another part of the pipeline to Puget Sound. Both were included in the transaction.

“The value of these assets is purely dependent on the expansion of the pipeline, and if it does not occur, the value of those assets drops significantly,” says the PBO.

“Good choice”

For his part, Finance Minister Bill Morneau defended his government’s purchase by saying that negotiations with Kinder Morgan were “difficult”.

“It’s clear that they wanted a lot more than what we finally paid, but the price is exactly in the middle of the Parliamentary Budget Officer’s analysis,” Morneau told reporters, adding that the purchase was a “good economic decision”.

But he refused to guarantee that the pipeline expansion would be ready on December 31, 2021, as announced by former owner Kinder Morgan last spring.